Why Japan's drive to end ‘death by overwork' isn't likely to set cash registers ringing

The Japanese may finally get to spend less time at work, but that doesn't mean they'll use it for shopping.

The government is taking aim at the workforce's reputation for long hours, proposing fresh legislation limiting overtime, potentially to 45 to 60 hours a month.

That comes after the release in October of the government's first study on karoshi, or death by overwork, finding that workers at 12 percent of companies work more than 100 hours of overtime monthly and 23 percent of companies have workers putting in more than 80 hours of overtime monthly.

But skepticism abounds that even workers who might gain as much as an additional 60 hours a month of leisure will use that time to consume more or help bolster a sluggish economy.

Kwok Chern-Yeh, head of Japanese equities at Aberdeen Asset Management, said via email recently that the actual proposals appeared watered down and he didn't expect much positive economic impact.

"Even if the Japanese work less, it won't improve spending," he said. "Quite the opposite, it will mean less pay at a time when wages are stagnant and purchasing power is being eroded by a weak yen (Exchange: JPY=). Added to this is a looming shortage of labor."

In a report last month, Deutsche Bank came to a similar conclusion, cutting its economic growth forecasts for Japan to 1 percent in 2017 and 1.1 percent in 2018, from 1.1 percent and 1.4 percent, respectively.

Deutsche Bank didn't expect the extra free time would spur more consumption.

That would echo the experience in South Korea, which phased in a shift to a five-day workweek, down from six, starting from 2002.

A 2012 paper by Sooyoung Sul and MoonJoong Tcha, which looked at data from 1985-2007, found introducing a five-day workweek didn't seem to affect leisure consumption in South Korea significantly.

In fact, very little seems to impact leisure spending: The 2012 paper found that even the late 1990s Asian Financial Crisis didn't swing it one way or another.

Instead, the study found leisure goods and services were generally treated as luxuries and demand was tied to income and price.

Indeed, shorter working hours appeared to get South Korea's consumers to spend less on at least one item: Tobacco.

A paper published in 2013, then revised in 2015, by Taehyun Ahn, an associate professor at Sogang University's School of Economics, found that South Korea's workers, particularly heavy smokers, were less likely to light up after their work hours decreased.

There was one thing workers definitely did more of: Exercise, the paper found. But that doesn't necessarily create additional spending.

Indeed, the spending on many consumer leisure items, such as movie-streaming services or gyms, doesn't necessarily change when a worker suddenly has more time to use them.

But South Korea's shorter workweek did create a lot more demand for workers.

Weekly hours per worker decreased around 13 percent to around 44 hours over a 10-year period, with the number of employees rising by 9.7 percent when working hours fell by 10 percent, according to media reports citing a 2012 release from the Korea Labor and Society Institute.

But fresh hiring will be difficult in Japan, where the working-age population is shrinking and the labor market tends to be rigid, discouraging workers from changing jobs.

Capital Economics noted in a report this week that just 5 percent of Japanese employees switched jobs last year and just 35 percent of job changers received higher pay, with a similar number getting a pay cut.

Capital Economics pointed to Japan's lifetime employment model, which deters job switching, and a pension tax system which rewards long spells with one employer.

"With the lifetime employment model preventing employees from switching jobs in search of higher pay, we think that wage growth will continue to fall short," the report said.

Others were a little more optimistic about how changes to Japan's overtime rules would impact the economy.

Yoshihisa Yamada, the chief financial officer at Japanese ecommerce player Rakuten, told CNBC recently that he believed less overtime would only be good for Japan's economy.

"People will be more focused on being productive as opposed to just spending a lot of time in the office," he said.

Yamada noted that his company had changed its official language from Japanese to English and that about half of Rakuten's engineers weren't Japanese.

"I think one of the issues with Japanese is that we weren't open enough. We were very inward looking, creating a lot of peer pressure," he said. "So I think if we have a more open culture, it will lead to the solution of this overtime issue."